Energy storage: update on key Ofgem publications in March

Ofgem published documents in March which will likely be of keen interest to developers looking at a range of different battery storage models.

Some of the potential impacts arising from changes proposed in these documents are summarised briefly below.

In each case, details of particular rules changes are yet to be finalised, so there will be a need to maintain a watching brief for further developments.

Triad benefits – exporting during triad periods

On 1 March, Ofgem published a "Minded to decision" in relation to arrangements around "triad" related embedded benefits.

The effect of the reforms which Ofgem is "minded" to approve will be to dramatically reduce by 2020 the value of the embedded benefits available to generators, including storage projects, from exporting electricity to the grid during the three half hourly triad periods.

The proposed changes would not affect the ability of behind the meter storage to generate savings for a demand customer by reducing demand during the three triad periods, as these particular changes will not have any direct effect on the way in which a demand customer is exposed to triad related charges. However, as described below, more fundamental changes to triad and other peak time related demand charges are now being mooted for the longer term.

The closing date for responding to Ofgem on the proposed reforms is 18 April. Ofgem has indicated it will then make a final decision in May.

Triad benefits – avoiding demand during triad periods

There was a brief period between 1 and 13 March when it appeared that reforms related to triad charging arrangements would not impact projects located behind the meter. However, on 13th March Ofgem published a further consultation titled a "Targeted Charging Review".

In this consultation, Ofgem sets out a number of options for reforming the way in which particular network charges should be constructed, including triad related transmission use of system of charges and peak time distribution use of system charges.

All of the proposed options would ostensibly remove any time of use element from the way in which charges are applied. As such, they would remove the potential for behind the meter storage – and any on-site or private wire generation - to reduce a demand customer's exposure to particular peak time network charges.

The indication from Ofgem is that it will carry out a "Significant Code Review" process in order to implement relevant reforms. This may mean that it will be several years before any of the wider changes mooted in the 13th March consultation actually take effect.

The deadline for responding to Ofgem in relation to this initial consultation is 5th May. Details of Ofgem's response to the consultation and likely next steps in any Code Review process should then emerge over the following few months.

Double charging of storage

In its 13 March consultation, Ofgem also expressed the view that changes should be made to the network charging regime to avoid exposing certain types of storage project to double charging. In summary, the proposal is that both stand-alone grid connected storage and storage co-located with generation should not be exposed to particular, demand related charges when importing electricity from the grid. Instead, for projects of this kind, exposure would be limited to particular, generation related charges when subsequently discharging electricity back to the grid.

Ofgem considers that these changes should not apply to storage co-located with demand. For a behind the meter battery project designed to provide support to a demand customer, that customer would therefore still be exposed to demand related charges when importing from the grid to charge the battery.

In terms of when any changes might be expected to take effect, Ofgem's current thinking is that changes should be taken forward outside of any wider "Significant Code Review" process: if this suggestion is taken-up, this may mean implementation in a slightly shorter timescale than those covered by the wider Code Review.

Capacity Market – durability of batteries

On 23 March, Ofgem published a consultation on proposed changes to the Capacity Market Rules.

Amongst various issues covered in this consultation, Ofgem provided an initial response to particular rule changes proposed by utility companies to address the concern that some batteries may not be able to discharge for the duration of a prolonged system stress event.

The two proposals previously put forward to address this issue were broadly as follows:

One proposed change was to introduce more onerous satisfactory performance requirements which would require battery facilities to prove that they are capable of discharging for longer periods than under the current rules – for example between 2 and 4 hours. This proposal was rejected by Ofgem.

The second set of proposals was to change the de-rating methodology so that batteries with relatively low durability would have their de-rated capacities reduced to reflect the length of time that they are actually capable of discharging at full capacity. Ofgem appeared to be amenable to this idea, but said that it was minded to reject the proposals for now as it believes that further analysis is required to determine the most appropriate change to the de-rating methodology.

As the proposals have been rejected for now, it seems unlikely that any changes in this area will be adopted in time for the 2017 T-4 Capacity Market prequalification. However, the consultation shows that Ofgem considers changes to the CM Rules are necessary to address this particular issue – and that changing the de-rating methodology would provide the most appropriate solution.

Ofgem indicated that National Grid and BEIS are currently in the process of developing a new de-rating methodology to deal with the issue. It is not clear when exactly further details will emerge and a watching brief will need to be maintained for now.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions